Biofuels: Oil firms expand ethanol investments in Brazil

20 June 2011 00:00  [Source: ICB]

Shell, Petrobras and BP vie for top biofuel producer spots as they expand their sugarcane ethanol investments in Brazil

 

Petrobras reaffirms commitment in ethanol investments

Anglo-Dutch company Shell, Brazil-based Petrobras, and UK-based BP are all spending millions to billions of dollars in biofuel investments, especially in sugarcane-based ethanol.

Shell announced in early June the formal launch of its $12bn (€9.5bn) biofuels joint venture company Raizen with Brazilian sugar and ethanol company Cosan. The deal marks Shell's entrance into biofuel production, said Mark Gainsborough, vice president of Shell's alternative energies.

"We want to be one of the world's leading biofuels players both in the manufacturing and in distribution and blending of biofuels," said Gainsborough.

"The Shell-Cosan JV [joint venture] is a great way of getting to scale in the biofuels business much more quickly than we'd be able to do otherwise."

The Raizen venture will also provide a platform for more growth opportunities in advanced biofuels, he added. "Brazil is already the world's most efficient ethanol producer but we still see ways to make it more efficient in the future," he said.

"We can also use it to produce advanced biofuels from agriculture wastes, which aren't processed at the moment. There is great potential in the future to produce biofuels that are even more efficient and with bigger carbon savings."

RAIZEN'S ENTRANCE
Raizen is expected to produce and sell over 2bn liters/year (528m gal/year) of sugarcane-based ethanol as well as distribute over 20bn liters/year of other industrial and transport fuels through a combined network of 4,500 Shell service stations in Brazil.

The company plans to export more ethanol in other key markets in the future. Raizen will become the third-largest fuel company in Brazil, Shell said. "We are building a leading position in the most efficient ethanol-producing country in the world," said Shell CEO Peter Voser. "Low-carbon, sustainable biofuels will be increasingly important in the global transport fuel mix."

By 2030, Shell expects biofuels to account for 9% of the global road fuel use, compared with its 3% now. New energy policies in Europe and the US are calling for more renewable, lower-carbon fuels for transport, said Shell.

Raizen currently can process up to 62m tonnes of cane into sugar or ethanol each year, with the flexibility to adapt to market demand, the company said. "Raizen's current annual production capacity will be enough to meet nearly 9% of Brazil's current ethanol demand," said Gainsborough. At gas pumps in Brazil, motorists are offered the choice of pure ethanol or a blend of gasoline and ethanol. Around 90% of the country's new automobiles are flexible fuel vehicles, which can run on either fuel type.

A Petrobras official also reaffirmed the company's commitment to spending $3.5bn on biodiesel and ethanol during an ethanol summit in Sao Paulo earlier this month hosted by Brazil sugarcane industry group UNICA.

In Petrobras' 2010-2014 business plan announced last year, the company planned to spend $1.9bn out of $3.5bn, on ethanol with the goal to reach 2.6bn liters/year of ethanol production by 2014 - from 886m liters in 2010. Petrobras also expects to increase ethanol exports from 449m liters last year to 1.06bn by 2014. In biodiesel, Petrobras expects its production capacity in Brazil to increase from 507m liters last year to 747m liters by 2014.

New updates in ethanol investments as well as production goals will be divulged in the 2011-2015 business plan, which is about to be approved in the upcoming months, said Petrobras biofuel director Ricardo Castello Branco.

Branco noted Petrobras' current stakes in various Brazilian ethanol and sugar companies such as Guarani Sugar, Nova Fronteira Bioenergy and Total Agroindustria Canavieira.

"We sought these partners with their track record on management practices, corporate governance, health, safety and the environment, that was compatible with Petrobras standards," said Branco. "Once Petrobras Biocombustivel has formed partnerships, projects for increasing production capacity became viable. Strong growth curves are based on partnerships with companies capable of meeting market demand."

Branco noted that the $3.5bn commitment included expansion of production, logistics as well as research and development.

Petrobras also announced this month a $400m investment program for biofuel research and development, which will include reuse of glycerin from biodiesel production, use of algae feedstock and other biotechnology platforms, and increased development of aviation biofuels as well as cellulosic ethanol from cane bagasse.

NEED FOR INVESTMENT
Branco stressed the need for investment in increasing ethanol productivity without expanding plantation boundaries.

"We have spent a lot of time discussing the issue of vertical growth with a view to limiting the use of natural resources," said Branco. "As a global energy company, we also have a responsibility to provide the consumer with sustainably-produced ethanol at a competitive price regardless of the global location."

Petrobras said it is also investing Brazilian reais (R) 6.5bn ($4.1bn) in a 800-mile (1,300km) ethanol pipeline being constructed by a joint venture between the company, Brazilian ethanol producers Cosan and Copersucar, and several domestic logistics and construction firms.

The first section of the pipeline, between Ribeirao Preto and Paulinia, is scheduled to come on line in January 2013.

BP ACQUIRED CNAA
In March, BP acquired 83% of the shares of Brazilian sugar and ethanol producer Companhia Nacional de Acucar e Alcool (CNAA) for $680m.

The acquisition will increase BP's Brazilian ethanol production capacity to 1.4bn liters/year, said Philip New, vice president of BP biofuels. This is BP's biggest acquisition to date for its alternative energy business, according to the company.

BP will acquire two operational ethanol mills in Brazil, and a third that is under construction.

Each mill will be able to produce 480m liters/year of ethanol and process up to 15m tonnes/year of sugarcane. BP said the mills will be able to supply both Brazilian and international markets.

BRAZIL AT SECOND PLACE
While Brazil leads the world in the use of biofuels for road transport, the region still ranked second after the US among top ethanol production countries in 2010, according to the report Global Biofuels Outlook to 2020 published in February from Hart Energy Consulting's Global Biofuels Center (GBC).

"With more than 51bn liters of ethanol production capacity in operation, the US is by far the leader with Brazil following with nearly 27bn liters last year," said Michael Marshall, lead research analyst for GBC. When combined, these two countries represent 82% of ethanol production capacity in operation worldwide. China ranks a distant third with more than 2.7bn liters followed by France (1.8bn liters) and Canada (1.5bn liters)."

When it comes to feedstock, however, UNICA noted that Brazilian sugarcane has the most efficient yields compared to corn used in the US and wheat in Europe for ethanol production.

Brazilian sugarcane yields 7,000 liters of ethanol per hectare of cane, said UNICA. "A hectare of corn in the US produces 3,000 liters of ethanol while a hectare of wheat produces 2,500 liters of ethanol," the group said.

CURRENT TIGHT SUPPLY
During UNICA's ethanol summit, market sources noted that Brazil's ethanol supply is expected to tighten for the 2011-2012 crop year ending in March because of slow start in this year's sugarcane harvest in South Central Brazil.

The sugarcane harvest in the area, which accounts for 90% of Brazil's ethanol production, runs from April to December. Market sources said ethanol supply is still ample, but continued strong demand could throw the market off balance in the inter-harvest months of January-March 2012, when the South Central mills will be mostly off line.

UNICA estimated Brazil's ethanol production for the 2011-2012 crop year to be almost flat from 2010. The south central region is expected to produce 25.5bn liters of ethanol for the crop year compared to 25.4bn liters produced in the 2010-2011 harvest.

UNICA said ethanol presently accounts for around 45% of Brazil's fuel consumption for passenger vehicles.

Brazil has 27m vehicles, nearly 50% of which are flexible-fuel vehicles that can run on gasoline, stand-alone hydrous ethanol or in a combination of both, the industry group said. Brazil's passenger vehicle fleet is expected to double to 52.5m vehicles by 2020.

Additional reporting by William Lemos in Houston and Hellen Berger and Leo Siqueira in Sao Paulo


By: Doris de Guzman
+1 713 525 2653



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